Family office insights this week:

• UBS report: insights plus family office perspectives

• A book on tax that actually won’t put you to sleep (no, really!)

• As some countries target the global elite, these two openly welcome them

• Results from our family office location poll (they’re surprising)

• And three more family office jobs well worth a look

Where Family Offices are Investing in 2024

This week I read the UBS Global Family Office Report so you don’t have to.

UBS is the world’s leading bank for wealth management. Since taking over Credit Suisse, UBS is managing more than $5.5 trillion of client assets.

For this report they surveyed 320 SFOs with an average net worth of $2.6 billion. All in all, there’s 600 billion good reasons to take note of their findings.

Here are the key trends identified in the report:

📈 Asset Allocation Changes: Family offices made big shifts in 2023, increasing their investments in developed market fixed income, which reached the highest level in five years.

Real estate investments went down due to falling commercial property prices in some regions.

🌍 Geopolitical and Climate Concerns: Family offices are worried about geopolitical conflicts and climate change over the next five years. High debt levels are also a significant concern.

🌐 Regional Preferences: Investments are heavily tilted toward North America, driven by confidence in the US tech sector and generative AI. European and Swiss family offices tend to have a home market bias.

💼 Active Management: There's a growing trust in active management and manager selection to diversify portfolios. High-quality short-duration fixed income is popular, especially in the US.

♻️ Sustainability: Sustainability is a major focus, with family offices seeking more sophisticated information and advice. Family offices are increasingly taking sustainability into account in their investments.

👪 Generational Wealth Transfer: Many family offices are preparing for a significant wealth transfer over the next 20 years, with an estimated USD 1.2 trillion expected to be passed down from over 1,000 billionaires. However, only 47% currently have a succession plan in place.

📋 Professionalization Needs: Many family offices still need to professionalize further, with only 44% having a governance framework and 40% having cybersecurity controls in place. Larger family offices are better equipped with these processes.

💸 Investment Focus: Most family offices concentrate their in-house investment efforts on equities, liquidity management, and private equity. Fixed income investments focus on high-quality bonds with tenors up to five years.

⚙️ Operational Challenges: Most family offices are small, with up to 10 staff members, which limits their capacity to handle a broad range of tasks beyond core investment and administrative duties.

“If the US is doing fine, why do we need to invest somewhere else? At the end of the day, this is an absolute return game, not a relative return game. You add to that the fact that the prospects for Europe do not seem as good as in the US.”

- President of a US family office

Asset Allocation

4 key takeaways on the global picture:

1. Increased Allocation to Developed Market Bonds: Following 2023's rise in fixed income prices, family offices have significantly increased their holdings in developed market bonds, reaching the highest level in five years.

2. Geographic Allocation Trends: Family offices have the highest allocations in North America and plan to increase investments there and in Asia-Pacific (excluding Greater China) over the next five years. European and Swiss family offices maintain a strong home bias toward Western Europe.

3. Rise in Active Management: There is a notable increase in confidence in active management for portfolio diversification.

4. Investment Themes: Generative artificial intelligence (AI) is the most popular investment theme for the next two to three years.

• 2024 survey shows family office portfolios are rebalancing.

• Strategic asset allocations in 2023 reflect shifts due to moderating inflation and declining policy rates.

• Changes in allocations may be influenced by high bond yields and trends anticipated in last year's report.

• A stabilizing macroeconomic environment is central to this shift.

• Inflation and policy rates have likely peaked in the US and Europe, expected to decrease in a healthy global economy.

• 73% of family offices predict US real interest rates will stay positive longer due to lower sensitivity to interest rate changes.

• European and Swiss family offices, accustomed to negative policy rates, believe US real interest rates will hover around zero (38%).

“The shift towards developed markets fixed income does not surprise me because we have owned little to no fixed income over the past 10 to 15 years. With the increase in interest rates, it was a natural shift as the asset class became sufficiently interesting to deploy capital.”

- Investment officer at a Swiss family office

Planned changes in asset allocation in the next five years:

Family offices are looking to diversify through active management:

• Balanced portfolios and active management are gaining favor again.

• Technological change, shifting rate expectations, and uneven growth present opportunities for active management.

• 39% of family offices globally are increasingly relying on manager selection and active management, up 4% from 2023.

• High-quality short-duration fixed income is a popular diversification strategy, used by 35% of family offices.

• Hedge funds are utilized by 33% of family offices for diversification.

Top six strategies currently used for diversification:

Investment themes

Unsurprisingly, the thematic focus is on AI. The likelihood of investing over the next two to three years:

Fixed Income

• Increasing bond allocations by reducing cash holdings.

• Prioritizing high-quality bonds while avoiding longer-duration, interest rate-sensitive bonds.

• Using fixed income for diversification, yield enhancement, and steady income generation.

“Fixed income begins with the handicap that it’s not tax efficient versus buy and hold equities. But let’s say that you have fixed income with a yield of 5% versus 1% previously. It hits people’s radar screen. You go from maybe not doing any fixed income to doing some”

- President of a US family office

Private equity and real estate

• Lack of exits and liquidity is the primary concern for private equity investors over the next 12 months.

• Family offices primarily invest in funds for diversification purposes, but direct investments are also a popular strategy.

• Real estate investors tend to prefer direct investments in wholly-owned physical properties, although co-investments are nearly as prevalent in the United States.

“We want to see some realizations before people come back to raise more money. I think that is a similar thing to what most of the endowments are pushing for. I do not worry about the exits because I think they will happen eventually but if private equity firms want to raise more funds they will have to calm down.”

- President of a US family office

Sustainability and Impact

• For family offices, sustainability and impact are viewed as crucial factors influencing both investment risks and opportunities, as well as the operations of their related businesses, given the growing emphasis on climate and environmental issues.

• As family offices deepen their understanding of sustainability and impact, they seek more advanced and specialized information and advisory services to navigate this domain effectively.

The UBS Global Family Office Report is always a goldmine of information about the sector. If you have time, you can read the full report from UBS here.

𝕏 highlights

This week I’ve been thinking about moving to Italy:

Or there’s Greece:

The problem for US citizens is that they are taxed on worldwide income wherever they live. So there’s the nuclear option:

 💼 where to work

More to come on family office careers, watch this space!

Another three notable family office job opportunities currently open:

Director of Family Services - White Oak Enterprises (Maryland / Family Office)

CEO- Multi-Asset Investment Fund (Switzerland / Family Office)

Global Chief Investment Officer - Northern Trust (Illinois / Service Provider)

📚 what to read

"Everyone needs to read a book about tax but nobody wants to"

I picked this up recently. It's hilarious (yes, really, a book on tax), it's informative and shocking in parts. It’s UK focused, but the humor and insights are universal.

📻 what to listen to

In this episode of How I Write, David Perell interviews Shaan Puri on the art of storytelling. Effective storytelling should not be underestimated. Shaan is entertaining and insightful and gives actionable advice. Well worth a listen.

📺 what to watch

If the summary today was not enough, a short overview video from UBS  

And finally…

This week I hit a Twitter milestone… 30,000 followers 🎉🍾

By contrast, things are a little slower over on LinkedIn. It’s definitely time to up my game… so follow along, drop comments or say hello!

Let’s MLGA! (Make LinkedIn Great Again, sorry)

In last week’s poll I asked What is the main consideration when choosing a family office location?

Tax and talent pool led the way with 42% of the votes. Quality of life trailed behind with 14%. Quite surprisingly, reputation and economic stability got very few votes.

So maybe the tax tail does wag the dog after all.

Lastly, a shout out to Hong Kong family offices. I’m planning a deep dive on family office locations, starting with HK. I’d love to hear your thoughts. Reply to this

Family Office Buzz will be back on Monday (here’s the last edition if you missed it) with more of the best content on family offices and beyond.

Until next week, see you on 𝕏 or LinkedIn

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